The Battle for the Bottom of Home

Bottom feeders. It’s not a very pretty description for anybody, much less any company. It does not have a particularly admirable image. But let me ask you: Have you ever seen a thin catfish?

Feeding on the bottom of a market segment like home furnishings turns out to be a very admirable strategy indeed if one considers the retailers who are trolling around on the underside of the business.

We all know about the luxury market and how retailers like Bloomingdales and Neiman’s online are doing quite nicely catering to the well-to-do. We know the guys in the middle who are slugging it out for the sweet spot of the American consumer, stores like Macy’s and Kohl’s and Bed Bath & Beyond. And we’re quite familiar with the discounters who go for the serious volume in the land of Walmart and Target.

But there’s a level several fathoms deeper in the retail biosphere where the lights don’t shine as brightly and the merchandising isn’t quite as slick.

It’s the bottom, and right now it’s booming. Blame it, of course, to a large extent on the Great Recession which continues to wreak havoc with the consuming ability of the American shopper. All of those anecdotal stories about customers lining up at stores at 12:01 a.m. on the day their unemployment or welfare checks clear are not just urban legend.

So, let’s take a look at the landscape (waterscape?) and see who’s there:

The retail darlings of the Great Recession have, of course, been the dollar stores. Dollar General and Family Dollar are the big hitters in that category, and there seems to be an endless supply of dollar wannabes out there. These stores have put a big hurt on Walmart the past few years, to the point that internally the boys in Bentonville finally stopped trying to be Target and have now became borderline obsessed with the dollar dudes.

The dollar stores have certainly gained share and their challenge now, as the economy creeps back, is to try to hold on to those new customers. But the vehicle they’ve chosen to do that is the field of consumables: convenience store-type food, health and beauty aids, and paper goods. So, down in dollarland, home is a factor but it’s not growing.

TJX is another story all together. With its flagship TJ Maxx and Marshalls units starting to – excuse the expression – max out as they each approach 1,000 locations, look for the company to start paying more attention to its Home Goods division. With only about 350 units, Home Goods is poised to get more than its share of Cap Ex expansion funding. Lord knows there’s enough available suitable retail real estate out there to put a Home Goods store in every strip mall in America, but I don’t think they’ll go that far.

But they are a comer and are going to continue to gain share out there. They are increasingly stocking their stores with in-line, reorderable merchandise, a fact most shoppers are ignorant of.

There’s a famous old story in the textile business about the glory days of Royal Velvet bath towels when every department store in America carried the line and twice a year they ran “IR” sales for what were then called Irregulars. They moved so many towels during those sales periods that it became clear to anyone who was paying attention that these couldn’t possibly be all seconds. If the Royal Velvet mills made that many irregulars, the entire manufacturing staff, not to mention the QC guys, would have been fired.

The off-pricers like Home Goods and Ross and Tuesday Morning have too big an appetite to subsist on just seconds, cancelled orders and overruns. Even if the consumer comes to ultimately believe that, it won’t much matter.

She loves this shopping channel and everyone knows it takes a bottom-feeding shopper to truly appreciate a bottom-feeding retailer.

Chances are you know all about the TJX business model but there are some sleepers amongst the bottom feeders too. Ever hear of Christmas Tree Shops? No, not the places that open up in November in converted outdoor furniture stores and then disappear as soon as the tinsel wears out. And no, not the ornament shoppes you see in tourist locations from Cape Cod to Carmel.

Christmas Tree Shops is one of the three legs of the Bed Bath & Beyond expansion strategy, along with Buy Buy Baby and Harmon Beauty/Face Values. With some 65 stores, it flies largely under the radar, one suspects even on the BBB balance sheet.

And it is cursed with one of the least appropriate, most misleading and downright dumb names of any retailer in America.

That said, if you’ve never been to a Christmas Tree Shops store, run there, don’t walk. Don’t worry about when you go. They are open year-round and chances are you’ll find one not too far from the Bed Bath mother ship. Once inside you’ll be greeted with a 30,000 or 40,000-square-foot merchandising monster that is a cross between a Home Goods, maybe a Garden Ridge and, a Bed Bath & Beyond. A person could bottom feed here for days and not get beyond aisle three.

But if you think Christmas Tree Shops is under most radars, there’s one more bottom feeder in the home business that puts it to shame. Allow me to introduce you to Anna’s Linens, the biggest little store you never heard of.

Spawned on the other side of the tracks in Orange County, California –not the blue-blood-moneyed-golfplaying crowd – and named after the founder’s mother, Anna’s Linens saw Bed Bath’s total domination of the home superstore space and decided that less was more. It started opening 8,000 to 10,000-square-foot stores in second-rate strip centers and loaded them up with closeouts, opening price point products and the dregs of the home textiles world.
It also figured out a basic tenet of home furnishings mathematics: Homes have more windows than they do beds. With an emphasis on curtains, the store became the go-to location for lower income shoppers, many of them Latino, trying to put a little pop in their low-rent homes.

Today, Anna’s has 300 stores from coast-to-coast with just the Northeast and some far north regions yet to conquer. With annual sales approaching $400 million, it is the ultimate home furnishings bottom feeder. Look up the term in the dictionary – or Wikipedia more likely – and you’ll see a picture of smiling Alan Gladstone, Anna’s baby boy, who has made the worst of times the best of times for his company.

Anna’s is partially owned by private equity money but has talked about going public for years. Watch for that stock offering. It could be the best bargain Anna’s has ever put on sale.

So, the shopping seas of the country are well populated with bottom feeders. And there’s no shortage of bargain hunting shoppers either. Sooner or later, there will be some consolidation in the ranks of dollar stores and off-pricers, as there has been in every other retail channel of distribution.

But in the meantime, the battle for the bottom of the home business will go on. Unfortunately for America circa 2012, it still contains plenty of room for growth.